Harlan Lunsford <hlunsfordns[at]bellsouth.net> wrote:
- quote -

[Business is not operated in Year 2, so no Schedule C is filed.]

- quote -

It could:

At the beginning of Year 1, buy inventory for $10K. At the
end of Year 1, it's worth only $7K, so it gets reported at
$7K. At the end of Year 2 (beginning of Year 3), its value
increased to $10K, so it gets reported as $10K.

- quote -

Even if he did, that's arguably the best and fairest way to
handle it.

Seth

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Seth Breidbart wrote:
- quote -

Try explaining "phantom income" to an IRS type! lol
anyway, I was of course referring to the "cost or market,
whichever lower" method, just as the question on the cost
of goods section asks. And since there IS no income until
something is sold, there would be an additional amount of
profit.

- quote -

That wouldn't happen either, for "lower of cost or market"
precludes your having to revalue any inventory upwards.

- quote -

Now, what I would do is simply not file any extraneous
schedule C for year two, but carry forth the ending
inventory at that value to year three. I would take a wild
guess here, that on audit no IRS type would bother it, or
even notice the difference. Unless he had followed this
thread.

Christmas Cheer$,
Harlan Lunsford, EA n LA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Harlan Lunsford <hlunsfordns[at]bellsouth.net> wrote:
- quote -

If that's the method chosen, yes, but (assuming that market
price changes during year 2) wouldn't that cause a problem?

For instance, if market value drops, the person lost the tax
benefit of that drop, creating phantom income.

If market value increases (and cost was greater than the
end-of-year-1 market) then some income would avoid taxation.

Or, you might consider that maintaining inventory is
sufficient "business operations" to file a Schedule C during
year two.

Seth

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

- quote -

This was a service business. No physical product or
inventory, but did have some depreciation of equipment. I
know that if you fail to claim depreciation you lose it for
that year, according to the IRS publication; you can't claim
it in another year. So I'm tempted to just not claim the
depreciation and lose it for 2003, but to go ahead and
decrease the basis of assets by the amount of depreciation
that I could have claimed, thus not extending the class life
any.

GS

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Seth Breidbart wrote:
- quote -

It wouldn't be handled. Absent any business operations, a
schedule C is not required. Assuming then, in year three
the business resumes, opening inventory would seemingly be
same as ending inventory of year one (year two being of
coruse the absent year).

However....... beginning inventory might ought to be cost
or market, whichever is lower? Never had this case
before, and probably never will, but fun to think about it.

Christmas Cheer$,
Harlan Lunsford, EA n LA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Harlan Lunsford <hlunsfordns[at]bellsouth.net> wrote:
- quote -

How would inventory be handled? (Simplest, it seems to me,
would be a Schedule C with the same amount for opening and
closing inventory and nothing else.)

Seth

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Harlan Lunsford wrote:
- quote -

(something about have no business activity in 2003)

- quote -

I can understand the reasoning, but I'm not sure the IRS
would agree.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Arthur L. Rubin wrote:
- quote -

I can't quite bring myself to agree with this. Expenses
including depreciation should be taken during the active
conduct of a business, yes. But in this case all business
activity was suspended.

So I would simply forget that year ever happened and
renumber the years on the depreciation schedule, resuming
the next fruitful year.

Christmas Cheer$,
Harlan Lunsford, EA n LA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

GarySport wrote:

- quote -

I don't think so -- but, if you've taken depreciation
or amortization in 2002, and it hasn't run out, you need
to continue that in 2003, leaving a 2003 Schedule C with
no income but with expenses.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

- quote -

It should not be a problem.

Mike

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

For the last 4-5 years I have had a small business out of my
home that generated a small profit, and I've filed Sched C
each year. In 2003, for a number of reasons, I was unable
to conduct the business, so there was no income from it. In
effect, I took a year off from that enterprise. So I won't
be filing a Sched C for 2003, but the business activity will
resume in 2004. Will a "missing" Sched C for 2003 therefore
likely cause any undo attention to my return down the line?
Thanks for info.

GS

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->